What are the risks of using the Interest Rate Swap?

Expert Solution

Risk related to interest rate swaps are as follows-

A. Interest rate swaps are not effective during the economic turbulence in the system.

B. Interest rate swaps can be subjected to liquidity premium to terminate.

C. There is also an involvement of counterparty risk associated with interest rate swaps.

D. These are not traded publicly so they do not have that much of transparency.

E. There is also a risk related to very high volatile economy in which these interest rate swaps are not effective.

Hence, interest rate swaps are subject to a large number of risk and they are not properly secured as they seem to be.

jeff jeffy answered 2 years ago

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